In these cases, the risk of injury is high, which is the most expensive for transaction costs. And sales volumes would not be so large that contract manufacturing could generate significant economies of scale; It would be too early to extend the technology to competitors whose additional commercial CMs could then result in lower unit costs for all. In addition, a company that has relocated all its production will lose most of its manufacturing knowledge over time, which, if not otherwise, will have to visit and inform the work of its CMs. For a contract to become legally binding for manufacturing, it must include an offer of work, acceptance by all parties, the intention to create a legal relationship and against a consideration (the transaction of currency or goods). This ensures that all parties are protected in the event of disagreement or that a third party does not keep its promises. It is obvious that OEMs have no choice but to co-exist with the production by hand. Fortunately, some defensive trains are available to deal with its dangers. The changing situation of contract manufacturers encourages them to develop their own brands. It occurs as follows: When CMs reach an effective scale, their cost levels converge. At the same time, the products they manufacture are starting to be marketed. In response, CMs will seek to regain a sustainable competitive advantage by carrying out the value-creating activities that their benefactors themselves had managed, such as research and development and marketing. In a variant of the innovator`s dilemma, OEMs release certain functions from their MM, leaving room for the development of capabilities that they can then use to threaten OEMs. That`s when the CMs themselves will become OEMs.
Lenovo and the Chinese-based haier (household) and TCL (television) manufacturers have become three of the world leaders in their sector. Companies should consider asking a potential contract partner the following questions: some organizations are particularly cautious about their proprietary products and services, which is most common in the technology sector.